Income Tax can be levied on Amount of enhanced Compensation and Interest received under Land Acquisition Act: SC [Read Order]

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A two-judge bench of the Supreme Court in Commissioner of Income Tax Faridabad Commissioner v. Chet Ram (HUF) held that the amount of enhanced compensation and interest received on it under the Land Acquisition Act is subject to income tax in the year it is received.

In the instant case, the respondents-assessees received amount of enhanced compensation under the land Acquisition Act. The department took a stand that the amount of such compensation and also interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are taxable under the Income Tax Act, 1961 in the year in which it has been received.

On appeal, the High Court held in favour of the assessee and concluded that no income tax is payable on the said amount.

Before the Apex Court, the department relied on the Apex Court decision in Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) wherein the Court, while considering the provisions of Section 45(5) of the Income Tax Act, held that in view of the Amendment in the Income Tax Act, the person who has received enhanced compensation and interest thereon even by an interim order passed by the Court would be assessed to tax for that enhanced compensation.

Following the above decision, Justices A K Agarwal and D Y Chandrachud ruled that the respondents are liable to pay tax on the enhanced amount of compensation and interest received by them during the year in question.

Read the full text of the Order below.

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